The European Parliament formally adopted electricity market design reforms

The European Parliament approved the legislation composed of a regulation and a directive regarding the reform of the EU electricity market on April 11, 2024. The reform aims to make the EU electricity market more stable, affordable and sustainable following the energy crisis in 2022. The new rules introduced aim to ensure better protection for consumers against volatile energy prices, more stability and competitiveness for companies and increased investments in renewable electricity.

To protect consumers against volatile prices, consumers will be given more choice in their electricity contracts, ensuring that consumers have access to clear information on fixed-price or dynamic price contract options. Suppliers will not be allowed to unilaterally change contract terms. According to the regulation, EU Member States will also be able to prohibit suppliers from cutting the electricity supply of vulnerable customers.

"Contracts for Difference" (CfDs) or equivalent schemes are envisaged for investments in electricity generation facilities based on wind, solar, geothermal, hydroelectric (without reservoirs) and nuclear energy in order to provide energy producers with a more stable income and thereby encourage energy investments.

To achieve long-term price predictability and decarbonization objectives, the legislation also encourages the use of power purchase agreements (PPAs), where a natural or legal person agrees to purchase electricity from a producer on a market basis.

The reform also sets out a mechanism to declare a regional or EU-wide electricity price crisis in case of very high electricity prices. This would allow member states to adopt temporary measures to set electricity prices for SMEs and energy-intensive industrial consumers.

After Parliament’s approval, the Council also needs to formally adopt the legislation to come into force. The Energy Council is set to convene 30 May 2024.